Court Addresses a Grave Matter
A joint account shared by a parent and child can trigger inheritance battles with siblings. Bank or investment accounts held jointly between an elderly parent and child are commonly used in Canada to avoid probate fees or for convenience. But when the parent dies and the child tries to claim all the money, siblings not named on the joint accounts may launch legal proceedings to establish their fair share of the money.
As FP tax columnist Jamie Golombek wrote last week in FP Weekend, the technical term for such accounts is "joint tenancy with rights of survivorship."
While alive, the parent has control over the assets, receives the investment income [from a bank GIC, for example] and pays taxes on it. When that parent dies, the named child assumes control over the assets, including the tax liability. If all the family, have agreed the assets in the joint account will be divided along with everything else specified in the parent's will, things may be fine. But what if the child named on the joint account balks, insisting the deceased parent had intended the money in the account to be a gift to him and him alone?
On May 3, the Supreme Court of Canada clarified the legal status of two such joint tenancy cases. In both, it ruled a surviving joint account holder must prove the deceased "transferor" intended to make a gift.
Absent documented proof of such an intention, joint assets will likely be considered to be held by the survivor as a "resulting trust" on behalf of the deceased owner, says Golombek. Therefore, the property of the estate would be divided according to the wishes expressed in the will.
"The fact the Supreme Court even agreed to hear these cases suggests this is an issue of national importance," Golombek says. "It's pretty rare that an estate litigation case makes it to the top court."
In the wake of these decisions, the Thornhill, Ont.-based law firm Fish & Associates has created a "Joint Asset Planning Kit" that eliminates any ambiguities involving joint accounts. A paper version is available at www.jointasset.com for $45 plus taxes and shipping.
Estate lawyers Barry Fish and Les Kotzer are co-authors of The Family War, a book describing the nasty legal battles that ensue among families squabbling over inheritances.
The third co-author is Jordan Atin, an estate litigator with Hull & Hull LP. He says that in the absence of appropriate evidence to the contrary joint accounts are considered "resulting trusts."
So while one child may hold a joint account with a parent for convenience, it's understood that the parent expects all the children to share the proceeds once the parent dies (depending what is specified in the will).
It's still possible for a parent to establish that a gift was intended at the time a joint account was set up. But explicit documentation is needed to establish this.
This arrangement presumes the concept of "advancement," which derives from an English legal term describing how a parent would gift assets to a particular child to "advance" their station in life.
This was the situation in one of the two SCC cases. It involved almost $1-million in mutual funds jointly owned by Edwin Hughes and his daughter, Paula Pecore.
The SCC upheld the ruling of lower courts that Edwin had intended the money as a gift for Paula alone. Unlike her two siblings, Paula was not financially secure and had to care for a paraplegic husband.
After the couple divorced, the ex-husband tried to establish his right to half the account on the grounds he was a beneficiary in Edwin's will. The SCC ruled against him, upholding an earlier ruling that the money was a gift to Paula alone. The opposite prevailed in the case of Patricia Brooks versus siblings Mary and William. There, the courts ruled a $185,000 joint account between Patricia and her father Michael had been set up only for "convenience purposes."
They showed that since no true gift had been intended for Patricia's sole benefit, the money had to be split with her two siblings. This is an example of the resulting trust in operation. Atin says these rulings also apply to real estate held jointly, including cottages, and may also apply to business assets.
Kotzer says the joint asset planning kit lets families document joint ownership under either option. If the parent really intends that the joint assts should go to a particular child rather than all the siblings, they express that intention with a document called "Declaration of Intention to Avoid a Resulting Trust."
If on the other hand the parent wants all the siblings to share in the asset, then he or she fills out a "Declaration of Intention to Have a Resulting Trust." Seems simple in retrospect, doesn't it? But as the old saying goes, "common sense ain't that common.
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